Big challenges emerging for for-purpose CEOs and Boards.
For-purpose CEOs and Boards will need to consider some big challenges as they plan for the next 5 to 10 years.
First of those is the need to modify traditional business models, driven by changing donor behaviour, shifting Government funding models, and the need to revise the way we measure growth;
Second is delivering digital transformation, which is much more than just getting into the cloud, it's about facing and embracing new technologies to change the way we work;
The third is to improve innovation and get the balance right between fiscal and moral responsibilities.
These challenges occur at a time when change is happening at an accelerated pace, on a variety of scales: social, political, cultural, technological, and environmental. We are seeing changes happen not as isolated events but rather as far-reaching, rapid, and simultaneous changes that are connected and interconnected. This results in increased uncertainty about what the future will bring and how we are best able to position ourselves and our organisations to respond to uncertain futures.
No organisation is immune to change.
The big question facing for-purpose CEOs and Boards is how they will deal with the change that is coming and what thinking, planning, and decision-making they need to do to enable their organisations to thrive in the world of rapid change. No organisation is immune from the impact of changes in technology, society, politics, and culture. The pace of change being experienced is unprecedented. We are currently trying to work with the decisions made by Boards and Executives five, ten, fifteen years ago which have created organisations designed to function in a world that no longer exists.
Expanded thinking.
The opportunity for for-purpose CEOs and Boards is how to continue to create impact in a world that is changing rapidly. It's no longer enough for organisations to focus on their core business alone, particularly if they are focused on delivering social impact. They will need to think about the whole system within which they operate as interrelated and interdependent. To achieve the maximum impact, organisations will need to be able to identify change early, think dynamically and act quickly. To do this well requires organisational agility that is founded on having an up-to-date vision of where you want to go, the right processes to ensure you can see how things are changing, being aware of any gaps that exist, a deep understanding of your stakeholders, and the ability to respond quickly. To be truly agile, organisations will need to have a strong sense of purpose, combined with an ongoing commitment to continuous improvement. This needs to be supported by talented people who can work together as a collaborative, networked, and cohesive team.
This may sound simple, but it isn't. This is because the reality is that change no longer happens in isolation; it's now happening across multiple sectors simultaneously, all influenced by market dynamics and socio-political factors that are in a high state of flux.
Let’s look in detail at the challenges we face:
Modifying Business Models
For for-purpose CEOs and Boards, the question of when to make change is less straightforward. The challenges are significant with projections for an ageing population, unfulfilled social needs in our communities, increasing demands on our time and attention span, and decreasing donor discretionary spending making it difficult for us to do what we do best- lead people to help people.
For-purpose organisations are always riding the line between how much to change, how fast to change, and when to change. Change is required because what was true yesterday will not be true tomorrow. We must always be ready to step into the unknown, no matter how we feel about risk and uncertainty.
As we contemplate change, we must ask:
“Is this change driven by what we believe will maintain our relevance and usefulness to the people we serve?”
Not only must for-purpose CEOs and Boards look within their organisations for answers to this question, but they also must stay aware of, and connected to, the external world. After all, there are always two sides to the business: what's going on outside and what's going on inside our organisations.
Organisations are struggling to grow revenue due to changes in donor behaviour and shifting Government policy priorities, resulting in a need to modify business models. Products and services are also becoming homogenous and no longer unique or impactful, which amplifies the effect of declining revenue and low or no revenue growth.
Here are some emerging issues to consider:
The shift from donor giving based on a "warm glow" and emotional connections, to rational decision-making and strategic giving.
This is a big change to manage for for-purpose organisations. We have a new world where donors are going from being driven by emotions and reactive to being more rational and strategic in their giving. Not only that but we have an ongoing trend towards engaged donors who want to be more involved with our missions and want to see the change they are supporting. This means that as CEOs and Boards, we need to support the evidence-based impact of our work as well as better communicating how our organisation is making the change on the ground. And finally, it means that we'll need to diversify individual giving revenue streams that can attract and engage these new donor behaviours, by developing new products, donor experiences, and journeys over longer time horizons.
The shift from the traditional models of funding between Government and for-purpose organisations to a focus on performance and outcomes delivery.
Over the past decades, Governments have increasingly outsourced more social service delivery to the non-government sector. At first, this was done using bulk, multi-year funding with minimal performance metrics other than baseline service provision and expenditure efficiency. Increasingly, in times of increasing debt and fiscal responsibility, Governments are starting to develop payment by outcomes contracting that supports higher levels of performance and links funding to the delivery of specific outcomes. These contracts phase funding over the life of the contract and link it to the measurable delivery of outcomes with an opportunity to receive additional funds if performance targets are exceeded. As a result, not-for-profits will need to get better at cash flow and risk management as well as outcomes evaluation and measurement. Our focus will need to shift from managing income and expenditure to proactively managing outcome delivery as well. This requires a new way of working across program delivery, business operations, financial management, and partnering with Government.
Defining and measuring growth in a changing world.
As business models adapt not-for-profits will need to create new ways of defining what growth looks like. The old metrics of revenue maximisation and cost minimisation will be no longer fit for purpose. We will need to redefine growth as delivering on our mission, results, and impact with an operating model that is not only sustainable but also supports new funding products and diversification. We will require new ways of measuring success by linking revenue growth to the delivery of outcomes and new ways of looking at the financials of our organisation that examines return on investment and impact delivery rather than just the traditional "bottom line". This will mean that for-purpose organisations will need to, more than ever, develop strong measurement and performance tracking systems and provide evidence on the impact of their work as well as engage with the community about what matters most in a local and global context. As CEOs and Board members, we will need to be bolder in thinking about ways of working differently.
Delivering Digital Transformation
Integrating digital technology into all areas of our business will result in a fundamental change to how our business operates and how we deliver impact. This is far more than just moving into the cloud; it involves a complete overhaul of the systems and processes that support our operations. There are three main emerging areas that we need to address; building comfort with Artificial Intelligence such as machine and deep learning to manage key processes; exploring new tech like augmented and virtual reality to engage with donors and service clients, and; managing digital governance across data, privacy and cyber security.
Building comfort with Artificial Intelligence such as machine and deep learning to manage key processes.
Artificial intelligence will change the way business operates. With AI, the not-for-profit sector can be more effective in increasing services to communities and fulfilling our organisational purpose. Many of the tasks we do today that take time and effort and distract us from our purpose will be able to be completed by AI. As a result, we should be able to focus more on the higher value-adding tasks and on delivering improved outcomes and impact. This will also result in a shift in the types of skills our workforce needs, and we will need to improve our ability to compete for employees with these skills. There is also a range of ethical issues to manage that AI brings around the use of data, privacy, confidentiality, and bias.
Explore new tech like augmented and virtual reality to engage with donors and service clients.
Technology such as virtual and augmented reality will allow fundraisers, marketers, and social workers to better visualise the impact they are having on communities in need. We should expect platforms where donors can visit service delivery sites locally and globally virtually interacting with the beneficiaries of their support. Virtual lab tours for medical research facilities are accessible 24/7. Training for social workers will allow them to engage in virtual training scenarios that look and sound exactly like those they will encounter in real life. As with AI, these types of technologies have a range of technological, workforce, operational and ethical issues that will need to be addressed.
Managing digital governance across data, privacy, and cyber security
Another big challenge will be building the digital governance required by new ways of managing data and technology across our businesses. This might involve considering if we should collect more or less personal information to figure out how best to improve our services for people who use them. It may also include looking at whether we could use new technology like privacy algorithms to securely share information with other services or organisations. This might seem complicated, but by having these conversations early we can better manage the emerging risks as they will appear quickly. Cyber security will be a major challenge for organisations, and we need to ensure that we are actively designing our way out of vulnerabilities across data storage, privacy, workforce compliance, threat response, and disaster recovery.
Delivering on digital transformation can be a major opportunity for for-purpose organisations, but it also comes with several risks and challenges that need to be considered. We should all embrace the opportunities of digital transformation while continuing to build our skills and capacity to manage the complexity involved.
Improving Innovation
This challenge has emerged because of the need for for-purpose CEOs to innovate while at the same time making sure that there is enough money on the balance sheet to ensure sustainability. Risk minimisation by retaining cash for a "rainy day" does not meet the expectations of funders wanting to see performance and impact. In a new operating environment created by global turbulence across consumers and markets, for-purpose organsations must embrace risk and work out ways to try, test, and learn how to better deliver operations and impact. There are still some people who remain wedded to the traditional way of doing things when this is an approach that has passed its used by date. Fiscal responsibility must not override the moral responsibility to use donor funds to deliver impact and results as fast as possible. What enables for-purpose organisations to innovate is harnessing (and funding) the power of new tools and technologies, supporting the workforce to actively look for improvements, agility in the way we work, and a balanced approach to risk.
Change must all be supported by effective leadership.
With increased demand for for-purpose organsations to do more, there is also a growing need for us to look closely at our leadership pipeline. The leadership challenge can be a significant hurdle in a world where there is a significant deficit of people with the skills and experience to manage modern for-purpose for impact and future growth. The need to attract, retain and develop people has become even more critical with the pace and complexity at which for-purpose organisations must perform. This has been compounded by the economic challenges of COVID-19 and increased competition from charities and other industries that are also trying to attract people with similar skills, experience, and attributes of a successful for-purpose CEO. Not only is there a shift in focus for not-for-profits to become more businesslike, but there is a growing expectation that they will do so. In addition, for-purpose organisations must also be able to develop their staff along a leadership pipeline into senior leaders and innovative thinkers as well as being able to work in a businesslike manner with other cultures and industries.
Be ready for what’s next.
The ever-changing world around us is presenting new challenges, and it can be difficult to keep up with the changes in technology, society, politics, and culture. If you're a CEO or Board member of a for-purpose organisation, these emerging challenges will shape your business planning and decision making over the next 5 to 10 years: modifying traditional business models, delivering digital transformation, and improving innovation.
To help tackle these big challenges head-on, insight & foresight can work with you to build foresight capacity and capability to plan and make decisions for impact and future growth.
